For some borrowers, refinancing is difficult. Underwriting and appraisal requirements have increased. For borrowers that do meet the increasingly stringent requirements, however, today’s record-low rates offer an unusually good opportunity, and, when taking advantage of the current conditions, there are a few tactics they can keep in mind.
Having a solid credit score is crucial when it comes to qualifying for refinancing, and this usually means 740 or above. Credit issues aren’t the sole premise of low-income borrowers either, as people with high credit scores who miss payments have more to lose, so to speak. It’s best to be aware of any problem areas and start repairing credit well before the qualification process begins. Loan officers remind their borrowers that they are legally entitled to three free credit report from Equifax, Experian and TransUnion, respectively, every 12 months, which is a good place to start.
In terms of other qualifying factors, things are generally easier for borrowers who have at least 20% equity and who have worked the same job for at least the last two years, unless they’re self-employed.
New borrowers and those refinancing know that lenders typically offer several different products. Even though the national average for interest rates is at an historic low, not all loans on offer are equal. Some of the larger institutions are also raising rates due to their pipelines nearing capacity; raising rates is meant to cut back on the volume of loans they have to process while giving profits a boost.
In addition to their products, different banks will have different loan costs. Origination fees for a $200,000 loan can range from under $200 to $2,000, and obtaining the numbers from a variety of lenders can serve as a useful bargaining chip. Ask your Loan Officer or contact us!
Loan officers see that, and surveys show, renters often aspire to be homeowners, but there are about five main issues holding them back. Loan originators hear these often, and can help potential borrowers analyze their particular situation to see if ownership makes sense.
Assuming a client has a stable job, the number one issue is saving enough for a down payment. It sure is fun to dip into those savings and have a nice vacation, or buy something you’ve always wanted. That aside, many potential borrowers don’t realize that they can still get a home for as little as 3.5 percent down with an FHA loan. Or if you buy an elgible home with a USDA Loan, there are even zero-money down payment options in certain rural areas.
The second biggest roadblock is actually qualifying for a mortgage. This is why licensed and experienced loan agents work with clients in putting their income, assets, and employment information together long before applying for a loan. A good credit score sometimes holds borrowers back, but once again, there are programs that can help – ask your agent. Borrowers sometimes hesitate because of existing debt. If you’ve got a ton of credit card debt and who knows what else, it’ll work against you when applying for a mortgage. Given that the more existing debt a typical borrower has, the less they’ll be able to borrow for their mortgage. So borrowers are told, “Pay down what you can before applying without exhausting your assets.” This will also give your credit score a boost!
The last issue agents hear about is declining home prices. A home is a home first and an investment second. Rates are very low, and expected to be low for quite some time, which helps cover this issue somewhat, but many economists believe that in some areas further depreciation is possible. If this is the major stumbling block, potential buyers should put their finances in order for a possible purchase next year.
There are many factors that enter into the decision to buy a house or what kind of loan to obtain, and interest rates are an important part of that. But borrowers should also consider the loan term, and whether or not to put more money into a down payment.
An interest rate is the price of money, and a mortgage interest rate is the price of money loaned against the security of a specific property. The interest rate is used to calculate the interest payment the borrower owes the lender. When you see a rate quoted by an agent, it is an annual rate although on most home mortgages the interest payment is calculated monthly. For a fixed-rate loan, the interest rate stays the same, but as months and years pass the interest payment portion of the total payment drops because the principal balance is lower – the loan is “amortizing”
The interest rate is important in the sense that the lower the interest rate, the better off you, the borrower, are. You can’t say that about interest payments, which depend not only on the rate but also on the loan amount and the term. Reduce the loan amount and/or shorten the term and interest payments will fall. Reduce the loan amount and you need to come up with more cash for the down payment. Shorten the term and you have to make a larger monthly payment. Borrowers can reduce the term on their own at no cost, either by taking a shorter term at the beginning, or by systematically making extra principal payments.
We are seeing increasing numbers of buyers entering the market. Rates are still relatively low, and values have come down and in many areas seem to not only have bottomed out but are also moving higher. It is always very difficult to pick the bottom, or top, of any market, but housing has not been this affordable for quite some time. Buyers are experiencing tighter underwriting standards than in previous years.
But we remind our customers that there are still superb advantages of buying over renting. Your agent can easily go through the “buy versus rent” numbers with you. While renting offers few, if any, tax breaks, buying a home offers several tax benefits that can make homeownership more affordable and a wise choice.
For example, home owners can take an itemized deduction on interest paid on home loans of up to $1 million for a principal residence and/or second home. This deduction could potentially reduce the cost of borrowing by one-third or more. Owners are able to deduct from their federal income taxes the state and local property taxes that you pay on the home. Several closing costs in a home purchase are also deductible, such as loan origination fees (points), prorated interest on a new loan, and prorated property taxes paid at settlement.
Homeowners who have lived in their home for two of the prior five years prior to its sale do not have to pay income tax on the majority of their profit — $250,000 for single homeowners and $500,000 for married homeowners who file jointly. And we see many homeowners who rent out their homes for part of the year - home owners can rent the home up to 14 days during the year and pay no tax at all on the rental income.
Any underwriter can tell you that one of the three “C’s” in making a decision stands for “Collateral”. Yes, the property is important. Properties have, for the most part, been appreciating in the last year or two, but problems still pop up with appraisals.
It is important for LOs and borrowers to know that comments on listings in the MLS can impact future home values in the area. "Puffing" listings to get more shows has been around in real estate sales as long as the weekend open house, and helps the seller feel better about the property, but unfortunately the practice does more harm than good.
By over-stating, or dressing up the condition of a property, agents are impacting future values and home sales: appraisers who do not view active listings, but instead review MLS data and comments, do not know how truthful the comments may be. As a result many homes that sell for near the lower end of the market due to condition of the property but are listed with remarks of ‘gorgeous throughout, remodeled kitchen and baths, re-carpeted’ create a comparable for appraisers for many months of a low price sale for a high condition property.
In other words, many low value appraisals are the result of the information provided to the appraiser by real estate agents in their MLS comments. A good loan officer, and Realtor, when viewing listings will often suspect when there is a great disconnect between the agent comments in the MLS and the reality of a home's condition. A good loan officer will often contact the listing agent and ask them to amend their comments to more accurately reflect the condition, or suggest leaving the comments regarding condition blank. Instead of "gorgeous throughout" say "great opportunity for new homeowners" or "easy to show and priced well for the market."
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